Forterra Regulatory News (FORT)

15 March 2017

FORTERRA plc

2016 FULL YEAR RESULTS

Strong progress following IPO - results in line with expectations

Forterra plc, a leading UK producer of manufactured masonry products, announces its results for the year ended 31 December 2016.

*Pro-forma basis is stated after making the following adjustments:

(i) deducting an appropriate level of plc and standalone overheads in 2015 to make it comparable with the cost structure in 2016;

(ii) deducting finance charges in 2015 and 2016 and recalculating assuming that the debt structure at IPO was in place throughout both years;

(iii) using the number of shares at 31 December 2016 for the EPS calculation in both years; and

(iv) excluding exceptional items.

Reconciliation from pro-forma basis to the statutory basis is included within the business review.

**Stated before exceptional items which are detailed in note 3.

HIGHLIGHTS

· Revenue increase of 1.5% due to increased brick, aggregate block and precast volumes arising from strong sales to housebuilders offset partially by merchant destocking earlier in the year

· EBITDA increase of £3.1m due to higher sales and good control of cost base and overheads

· Strong cash flow performance reduced debt ahead of target, with net debt at 31 December 2016 of £92.3m representing 1.3 times adjusted EBITDA

· Total dividend proposed of 5.8 pence per share, consistent with the policy set out at IPO

Stephen Harrison, Chief Executive Officer, commented:

"Our first annual results as a listed company show good progress in the delivery of our strategy. Revenue and profit both increased year-on-year due to a strong performance in the second half as volumes to housebuilders continued at a good rate and the destocking in the supply chain at merchants and distributors eased towards the end of the year.

"2017 has started well, building on the momentum seen in the second half of 2016, with brick volumes for the first two months ahead of last year. The Group continues to see strong activity levels from the major housebuilders and positive indications from these customers for at least the first half of the year. It appears that the destocking in the builders merchants' supply chain is now largely complete. As anticipated, price increases for the year have now been agreed with most customers in order to cover the increases in the cost base.

"Based on our order book and current levels of activity, the outlook for the first half of the year is good. We have less visibility for the second half of the year, however we anticipate a more balanced outcome between the first and second halves than in 2016. At this stage we expect to make progress through 2017 and our expectations for the full year are unchanged. The Board remains confident that the business is well-positioned to take advantage of the attractive market fundamentals and of its ability to increase shareholder value."

A presentation for analysts will be held today, 15 March 2017, at 10:30am at the offices of FTI Consulting. A recorded audiocast of the presentation will be available on the Investors section of our website (http://forterraplc.co.uk/) later in the day.

ABOUT FORTERRA PLC

Forterra is one of the leading manufacturers of building products for the UK building and construction industry. The Group's product range comprises of clay bricks, Thermalite blocks, aggregate blocks, Red Bank chimney, roofing and flue systems, precast concrete and flooring products and Formpave permeable block paving. The Group operates from 17 facilities in total and was listed on the London Stock Exchange's Main Market in April 2016.

 The Group's three primary businesses are:

· Bricks: the Group is the second largest manufacturer of bricks in Great Britain and is the only manufacturer of the iconic and original Fletton brick sold under the London Brick® brand. The Group operates nine brick manufacturing facilities in Great Britain with a total production capacity of 570 million bricks per annum

· Blocks: the Group is a leading manufacturer of aircrete blocks in Great Britain which the Group sells under its Thermalite® brand. The Group also manufactures aggregate blocks, for which it enjoys strong sales in the East and South East of England. The Group operates four block manufacturing facilities in Great Britain

· Bespoke Products: the Group's bespoke products range comprises precast concrete, concrete block paving and chimney and roofing solutions, each of which is primarily specified, made to measure, or customised to meet the customer's specific needs. The Group's precast flooring products are complemented by the Group's full design and nationwide installation services, while certain other products, including concrete block paving and chimney flues, are complemented by the specification and design services. The bespoke products business operates from four manufacturing facilities in Great Britain

BUSINESS REVIEW

Forterra has a rich heritage emanating from Hanson plc (now part of HeidelbergCement AG), and was a key player in the consolidation and rationalisation of the building products sector. The business was successfully established as a stand-alone company under Lone Star Funds' ownership before being brought to market as a new public company in April 2016. Today, Forterra is a UK leader in manufactured masonry products, with a unique combination of strong market positions in clay bricks and concrete blocks. The Group also produces a complementary range of bespoke building products, the most significant being engineered precast concrete flooring solutions.

Within our clay bricks business, Forterra focuses on the efficient manufacture of high volume extruded and soft mud bricks, primarily for the housing market. The business is also the sole manufacturer of the iconic Fletton brick sold under the London Brick® brand. Fletton bricks were used in the original construction of nearly a quarter of England's existing housing stock and are today targeted at the residential improvement market to match existing brickwork. Our concrete blocks business is one of the leading producers of both aircrete and aggregate blocks, the former being sold under one of the country's principal aircrete brands of Thermalite.

STRATEGY

The Group primarily supplies products into the UK housing industry. After an extended period of subdued house building activity, the UK has a significant structural undersupply of housing. The business is well-positioned to take advantage of the attractive market fundamentals in the short to medium term by utilising its existing, well-invested manufacturing facilities, available production capacity and inventories. Over the medium term, we have a number of options to drive future growth.

The five pillars of Forterra's strategy are:

· embed manufacturing excellence across the business;

· align capacity and utilisation to market conditions;

· maintain cost leadership through operational efficiency in all parts of the business;

· product and service innovation; and

· enhance the range of products and services through both organic investment and appropriate bolt-on acquisitions.

2016 RESULTS

Revenue of £294.5m was 1.5% ahead of last year, reflecting a strong performance in the second half as volumes to housebuilders continued at a good rate and the destocking in the supply chain at merchants and distributors eased towards the end of the year. Sales volumes of bricks, aggregate blocks and precast concrete products were all ahead of last year. As previously reported sales of aircrete blocks were affected by availability of raw materials during some weeks. The Group achieved low single digit price increases at the start of 2016 as anticipated, but relatively higher sales of some of the lower priced products in our range to volume housebuilders led to an adverse mix variance.

Due to the listing on the London Stock Exchange's Main Market through an Initial Public Offering (IPO) in April 2016, coupled with a refinancing (which significantly reduced indebtedness at the date of listing), a true comparison of performance with the prior periods is difficult. In order to make a comparison more meaningful, the profit before exceptionals for 2015 has been shown on a pro-forma basis after adjusting for additional costs relating to being a stand-alone plc. The finance charge for 2015 and the first half of 2016 has been calculated assuming that the debt structure at IPO was in place throughout both periods, and the pro-forma profit before tax is calculated on this basis. Similarly, the number of shares in issue at December 2016 has been used in calculating pro-forma earnings per share for comparative periods.

Earnings before interest, tax, depreciation, amortisation and exceptional items (EBITDA before exceptionals) of £70.6m for the year was £3.1m ahead of the comparable result for 2015. The increase was due to higher sales, lower energy costs and tight control of fixed costs and overheads, offset in part by the adverse sales mix described above. EBITDA margin of 24.0% was ahead of the comparable 2015 margin of 23.3%.

In October 2016, the Group completed the sale of its Structherm subsidiary in order to focus on improving and growing the core businesses of bricks, blocks and other concrete and clay building products. Structherm manufactures structural external wall insulation solutions for residential buildings.

The pro-forma profit before tax and exceptional items of £54.3m was £2.0m higher than the comparative for 2015. Profit before tax on a statutory basis was £37.1m for 2016 compared with prior year of £22.2m. Apart from the trading factors described above, there was a higher finance charge in 2015 due to the increased net debt and higher interest rate in place under the previous ownership structure. Exceptional charges totalled £8.9m in 2016 and £11.6m in 2015, mainly arising from the costs of separating the business from HeidelbergCement AG and the listing costs relating to the IPO completed in April 2016.

CURRENT TRADING AND OUTLOOK

2017 has started well, building on the momentum seen in the second half of 2016, with brick volumes for the first two months ahead of last year. The Group continues to see strong activity levels from the major housebuilders and positive indications from these customers for at least the first half of the year. It appears that the destocking in the builders merchants' supply chain is now largely complete. As anticipated, price increases for the year have now been agreed with most customers in order to cover the increases in the cost base.

Based on our order book and current levels of activity, the outlook for the first half of the year is good. We have less visibility on the second half, however we anticipate a more balanced outcome between the first and second halves than in 2016. At this stage we expect to make progress through 2017 and our expectations for the full year are unchanged.

The Board remains confident that the business is well-positioned to take advantage of the attractive market fundamentals and of its ability to increase shareholder value.

EARNINGS PER SHARE AND DIVIDEND

Earnings per share before exceptionals has also been derived on a pro-forma basis using the profit before tax and exceptional items, effective tax rate for each year and the number of shares outstanding at the end of December 2016. On this basis, EPS was 4.4% higher than 2015 at 21.5 pence per share. EPS on a statutory basis has also been calculated using the number of shares at the end of December 2016 and was 13.8 pence per share for 2016.

The Board is proposing a final dividend of 3.8 pence per share, which together with the interim dividend, would make a total of 5.8 pence for the full year. This represents a payout of 41% of post-IPO earnings which is slightly ahead of the target set for the first year.

The Board intends to follow a progressive dividend policy from this base.

CASH FLOW, BORROWINGS AND FACILITIES

Operating cash flow before exceptionals of £69.8m was £16.0m higher than 2015, mainly due to a strong trade working capital performance and the inclusion in 2015 of flows arising from the previous ownership structure. The cash generation of the business is weighted more to the second half due to a build-up of working capital earlier in the year. Debtor days on a countback basis reduced from 42 days at December 2015 to 39 days in 2016. Brick inventory levels reduced in the year due to the increase in demand and the measures put in place during the year to balance demand, inventory and utilisation levels.

Capital expenditure for the year totalled £9.1m and included the successful completion of the expansion work at our Measham facility at the start of the year and the upgrade carried out at our Hams Hall aircrete facility. We have also committed significant investment and resources to upgrade our IT systems across the business.

Net debt at 31 December 2016 was £92.3m compared with £155.0m at IPO in April 2016. The larger than expected reduction in net debt is due to the strong cash generation of the business, helped by an excellent working capital performance and also the timing of the IPO in the last week of April 2016 ahead of cash collections at the end of the month.

Net debt to EBITDA (calculated with reference to the last twelve months of earnings before exceptionals) was 1.3 times at 31 December 2016 compared with 2.2 times at IPO and ahead of the target set at the time of the IPO to reduce the leverage level to be below 1.5 times. For the purpose of calculating the covenant, the net debt excludes capitalised finance costs in line with the requirement of the Facility Agreement.

Committed borrowing facilities of £180m were agreed with a group of leading international banks at IPO, comprising a £150m term facility and £30m Revolving Credit facility (RCF) expiring in April 2021. At 31 December 2016, only the term loan of £150m was drawn down and the whole of the RCF remains available for future drawdown. The financial covenants required interest cover to be greater than 4 times and net debt to EBITDA before exceptional items to be less than 3.5 times at 31 December 2016. The test required that for 2016 the interest cost was calculated by doubling the interest charge for the second half of the year. The Group met these covenant tests comfortably.

The interest payable on the facilities is set at LIBOR plus a margin ranging from 150bps to 275bps dependent on leverage, with the margin set at 225bps for 2016.

* there were no exceptional items relating to the segment in 2015 or 2016

The Group has a unique combination of strong market positions in both clay brick and concrete blocks. It is also the only manufacturer of the iconic and original Fletton brick sold under the London Brick® brand. The Group operates nine brick manufacturing facilities across the country with a total production capacity of 570 million bricks per annum. It is also a leader nationally in the aircrete block market selling under the Thermalite brand, operating from facilities at Newbury, and Hams Hall in the Midlands. The aggregate blocks business has a leading position in the important South East and East of England markets with well-located manufacturing facilities at Milton (Oxfordshire) and Whittlesey (near Peterborough).

Revenue increased by 1.5% due to higher brick and aggregate block volumes compared to 2015. There was a strong increase in brick sales to housebuilders, with volumes to merchants and distributors restricted by excess inventory held in the supply chain, though this eased in the last quarter of 2016. Brick imports also reduced during 2016 as anticipated, enabling a higher level of market demand to be satisfied by domestic production. Sales of aircrete blocks were affected by production constraints in some weeks due to the unavailability of pulverised fuel ash (PFA), which is a by-product of coal-fired power stations. Low single digit brick price increases were applied at the start of 2016, in line with expectations, but the positive effect of this was offset by a mix variance arising from higher sales to volume housebuilders.

EBITDA before exceptionals increased on a pro-forma basis to £63.6m, with margin improving to 28.7%, due to higher sales volumes, lower energy and fixed production costs offset partly by sales mix. Kilns at two of the Group's brick facilities at Accrington and Claughton were temporarily turned off mid-way through the year, and this enabled generally higher utilisation at the other facilities, as well as a reduction in inventory levels in the second half. The actions demonstrate the Group's ability to effectively flex production in response to changes in the end market.

In January 2016, the project to increase capacity at the Group's Measham brick facility in Leicestershire was successfully completed on schedule and under budget, resulting in annual capacity at the plant increasing 22% to 105 million bricks with a capital spend of less than £4m. This project included extending the length of the kiln and improving product flow-through by eliminating bottlenecks. Whilst there were some teething problems as the plant was restarted following the major work, these have all been resolved and the plant is now fully operational. The Measham facility is state-of-the-art and the most modern and fully automated soft mud brick manufacturing facility in the UK.

Refurbishment of one of the kilns at the London Brick® (Fletton) plant at Kings Dyke (near Peterborough) was also completed for the start of 2016, enabling an increase in available production capacity. In the last quarter of the year, capital projects were approved totalling £6.5m at two other brick facilities. At Desford, a project to increase gas supply capacity and install new kiln burners has commenced, with an estimated brick capacity increase of 10 million per annum (c12%). The project to replace the dryers at Claughton has also been initiated. This will improve the efficiency of the production process and add additional capacity of 5 million bricks per annum (c11%). The Claughton kiln was turned off in August 2016, and it is planned to complete the project in the first half of 2017 in order to be in a position to relight the kiln in summer 2017.

The Group continues to progress a number of initiatives to secure supplies of PFA and alternative materials so as to have uninterrupted production of aircrete blocks. Following the successful modernisation and expansion of the facility at Hams Hall in 2015, a further £0.6m was invested at the plant to enable the use of conditioned (wet) PFA. Output at both the aggregate block plants increased in 2016. There was a strong demand for this product and record output from the two facilities.

A number of important sales and commercial changes have been implemented during the year in order to strengthen relationships with customers and improve service levels. A new Commercial Director was appointed and a new sales structure introduced to give clear focus on critical market segments. The sales team has been reorganised from individuals selling either bricks or blocks, to area teams selling all products into postcode territories, with an improvement in coverage. The Group has also increased its presence with architects and specifiers by adding further resource in this area. A new system to monitor sales activity on a real time basis has been implemented in order to increase customer service and improve market insight.

The Group operates a dedicated sales and customer service centre for the bricks and blocks business allowing it to respond to customers more effectively and efficiently. Investment has been made in training sales and support staff so that they have a greater knowledge of all the products the Group offers and can continue to provide a high level of customer service.

A dedicated New Product Development team has been established during the year and the product range expanded in order to broaden customer offering utilising the capability of our facilities and people. A number of new brick types were added to the range during the year. It is planned that this will be an ongoing programme of activity, working closely with our customers as well as specifiers and architects.

The Group offers high service levels by operating its own fleet of 125 crane-equipped delivery vehicles to deliver its bricks, aircrete and aggregate blocks to customers. These vehicles account for approximately 60% of total deliveries, with the balance carried out by third party hauliers in order to maximise flexibility and cost-effectiveness. An optimisation tool linked to the sales order processing system is used to ensure efficient scheduling of deliveries, providing visibility of vehicle activity and enabling the team to adapt to changes in customer requirements.

* exceptional items relating to the segment comprised a charge of £2.4m in 2015 detailed in note 3

The Bespoke Products division focuses on specification-led, made-to-order products comprising: precast concrete, block paving, chimney and roofing solutions, much of which is primarily made-to-measure or customised to meet the customer's specific needs.

Overall revenue for the division grew by 1.5%, due to a strong performance from the engineered precast concrete flooring products. EBITDA before exceptional items increased on a pro-forma basis by £1.2m to £7.0m. As described previously, the external wall insulation business Structherm was sold in October 2016. Excluding this business, the underlying revenue growth was 4.7%, and the underlying EBITDA margin for 2016 was 9.7%.

Precast concrete products are designed, manufactured and shipped nationwide from the Hoveringham and Somercotes facilities. The precast concrete flooring business had a very successful year in 2016, with record supply of T-beams aided by utilisation of the additional capacity installed at the Somercotes facility in the previous year. The Somercotes facility also won the contract to design, manufacture and supply the Forterra Omnia Bridgedeck system for Scotland's largest infrastructure project, and designed and supplied the precast units for Ilkeston's new railway station platforms. It has recently secured dual supplier status with the UK's largest retirement homes supplier and has started receiving orders under this new arrangement.

Cost optimisation continues to be a focus at all the plants. At our Hoveringham facility, new casting equipment technology has been installed, resulting in a saving of up to 20% on cement usage in hollowcore flooring.

Formpave, based at our Coleford site, designed the United Kingdom's first permeable block paving solution almost 20 years ago and continues to be a leading authority in the design and specification of sustainable urban drainage systems ("SuDS") using the Group's permeable block paving.

During the year, the business secured preferred supplier status for its permeable paving product for a premium national automotive dealership. In addition, Formpave has made significant progress in the development of its Aquaflow Thermapave system, which combines ground source heat pump ("GSHP") technology with its patented Aquaflow® sub-base, to generate sufficient energy to allow the transfer of heat into and out of buildings during cold and hot periods, respectively.

Formpave has also recently commenced a project to install a replacement block press machine which will enable higher production capacity and greater efficiency across its product range.

Red Bank manufactures its products from its facility alongside the Measham quarry and brick facility, producing a comprehensive range of chimney, roofing and flue systems. Products include fire-backs, clay and concrete flue liners (developed to meet the growing demand for flue products to suit modern efficient wood-burning, multi-fuel and gas-fired appliances), chimney pots and ridge tiles and a complete bespoke manufacturing facility to accommodate unique customer requirements.

HEALTH & SAFETY

The Board puts its highest priority on maintaining a safe workplace, and during the year a number of initiatives were taken to enhance health and safety at work. These focused on three strategic themes:

· acting together - promoting broader ownership of health and safety;

· tackling ill health - highlighting and tackling the cost of work-related ill health; and

· managing risk well - simplifying risk management and helping our business to grow.

The Chairman has asked that all Directors conduct safety walks at a facility annually in order to build awareness and emphasise the importance that we place on safety. In addition, all senior operational managers are required to gain the NEBOSH general certification in occupational health and safety and during the year a further 15 managers were awarded the qualification.

The Group's 'Lost Time Injury Frequency Rate' reduced by over 50% from 3.1 in 2015 to 1.5 in 2016, and the bricks business went through the whole year without a single lost time incident.

OTHER FINANCIAL INFORMATION

EXCEPTIONAL ITEMS

Exceptional items totalled £8.9m in 2016 compared with £11.6m in the previous year:

Transaction costs related to the IPO of the Company completed in April 2016. Separation costs arose from the setting up of the business as a stand-alone entity after divestment from HeidelbergCement AG in 2015 and Forterra Inc in 2016 and included rebranding, set up of standalone IT systems, staff recruitment and new office fit out costs. An indemnity payment was received in the year from HeidelbergCement AG relating to previous tax paid prior to separation, and this has been credited as an exceptional item.

FINANCE COSTS

The total finance costs for 2016 were £14.2m (2015: £27.3m).

Since the IPO of the business in April 2016, finance costs relate to the interest and commitment fees in respect of the new debt facilities of £180m put in place. The interest payable on the facilities is set at LIBOR plus a margin ranging from 150bps to 275bps dependent on leverage, with the margin set at 225bps for 2016. In addition the cost of arranging the facility of £2.9m is being amortised over the term of the facility.

The Group had a much higher debt level and interest rate during 2015 and for the first months of 2016 up to the IPO.

The pro-forma annual finance cost for 2016 was £5.9m (2015: £5.8m) assuming that the debt facility at IPO had been in place throughout the year, and this has been used to calculate the pro-forma profit before tax and earnings per share before exceptional items.

TAXATION

The effective tax rate excluding exceptional items is 20.9% (2015: 21.1%). The Group derives substantially all its revenue from the UK and the rate is based on the UK corporation tax rate adjusted for permanent non-deductible items such as depreciation on non-qualifying assets.

The effective tax rate after including exceptional items was 25.9% (2015: 18.7%) due mainly to the non-deductibility of some of the IPO transaction costs.

PENSIONS

The Group has no defined benefit pension scheme in place, with the legacy liabilities of the previous pension scheme left with HeidelbergCement AG when the business was divested. There is a defined contribution arrangement in place and pension costs for the year amounted to £5.2m (2015: £4.3m), with the increase from prior year due mainly to the transition from HeidelbergCement AG and the establishment of a new Head Office during 2015.

DISPOSAL

In October 2016, the Group completed the sale of its Structherm subsidiary in order to focus on improving and growing the core businesses of bricks, blocks and other concrete and clay building products. Structherm recorded sales of £1.5m (2015: £3.7m) and an operating loss of £0.1m (2015: profit £0.1m) up to the date of disposal. The Group recorded a loss on disposal of £0.1m as a result of the transaction.

PRINCIPAL RISKS AND UNCERTAINTIES

The Group has established processes for identifying, evaluating and managing the key risks which could have an impact upon performance, and is formalising these under the direction of the newly established Board Risk Committee.

The principal risks and uncertainties facing the business are detailed in part 1, pages 16-33 of the prospectus published in April 2016, which is available on the group website (forterraplc.co.uk). The Group has reviewed these risks and concluded that they continue to remain relevant.

GOING CONCERN & VIABILITY STATEMENT

The Directors have assessed the Group's current financial position and the factors likely to affect performance in the coming year in light of current and anticipated economic conditions. Based on this assessment the Directors can have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of the financial statements. On this basis the going concern concept has been adopted in the preparation of this Annual Report and Financial Statements.

The Directors have conducted a review and assessed the prospects and viability of the Group. They confirm that they have a reasonable expectation that the Group will continue in operation, meet liabilities as they fall due and will not breach covenants over the three year period covered by the review.

PRO-FORMA ADJUSTMENTS

The following pro-forma adjustments have been made to enable a proper understanding of the result compared with the prior year:

 EBITDA is calculated by adding back depreciation and amortisation to operating profit:

FORWARD LOOKING STATEMENTS

Certain statements in this annual report are forward looking. Although the Group believes that the expectations reflected in these forward looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward looking statements.

We undertake no obligation to update any forward looking statements, whether as a result of new information, future events or otherwise.

FORTERRA PLC

PRELIMINARY STATEMENT OF RESULTS

CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2016

CONSOLIDATED BALANCE SHEET

AT 31 DECEMBER 2016

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2016

NOTES TO THE PRELIMINARY RESULTS

1. General information

Forterra plc ("Forterra" or the "Company") and its subsidiaries (together referred to as the "Group") are domiciled in the United Kingdom. The address of the registered office of the Company is 5 Grange Park Court, Roman Way, Northampton, England, NN4 5EA. The Company is the parent of Forterra Holdings Limited and Forterra Building Products Limited, which together comprise the group (the "Group"). The principal activity of the Group is the manufacture and sale of bricks, dense and lightweight blocks, precast concrete, concrete block paving and other complementary building products.

Forterra plc was incorporated on 21 January 2016 for the purpose of listing the Group on the London Stock Exchange. Forterra plc acquired the shares of Forterra Building Products Limited on 20 April 2016, which to that date held the Group's trade and assets, before admission to the main market of the London Stock Exchange.

Basis of preparation

Forterra plc was incorporated on 21 January 2016, however the preliminary results of the Group for the year ended 31 December 2016 and comparatives for the year ended 31 December 2015 have been prepared on the basis that Forterra plc was in existence throughout both periods. The terms of the acquisition of Forterra Building Products Limited's shares was such that the Group reconstruction should be accounted for as a continuance of the existing Forterra Building Products Limited group rather than as an acquisition. Accordingly the preliminary results for both periods have been prepared on this basis, extracting financial information from the consolidated statutory accounts of Forterra Building Products Limited for both the year ended 31 December 2015 and the period prior to the incorporation of Forterra plc in 2016.

The preliminary results for the year ended 31 December 2016 have been extracted from the audited consolidated financial statements, which were approved by the Board of Directors on 15 March 2017. The audited consolidated financial statements have not yet been delivered to the Registrar of Companies but are expected to be published by the end of April 2017. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under s498(2) or (3) Companies Act 2006.

This preliminary announcement has been prepared in accordance with the accounting policies under IFRS as adopted by the EU. Whilst the financial information included in this preliminary announcement has been prepared in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. This preliminary announcement constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosures and Transparency Rules (DTR).

Copies of the Report and Accounts for the year ended 31 December 2016 will be mailed to those shareholders who have opted to receive them by the end of April 2017 and will be available from the Company's registered office at Forterra plc 5 Grange Park Court and the Company's website (http://forterraplc.co.uk/) after that date.

The preliminary results are presented in pounds sterling and all values are rounded to the nearest hundred thousand unless otherwise indicated.

2. Segmental reporting

Management has determined the operating segments based on the management reports reviewed by the Operating Board that are used to assess both performance and strategic decisions. Management has identified that the Operating Board is the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating segments'.

The Operating Board considers the business to be split into three operating segments: Bricks, Blocks and Bespoke Products. The principal activity of the operating segments are:

· Bricks - Manufacture and sale of bricks to the building sector

· Blocks - Manufacture and sale of concrete blocks to the building sector

· Bespoke products - Manufacture and sale of bespoke products to the building sector

The Operating Board considers that, for reporting purposes, the operating segments above can be aggregated into two reporting segments: Bricks and Blocks and Bespoke products. The aggregation of Bricks and Blocks is due to these operating segments having similar: long-term average margins; production process, suppliers, customers and distribution methods.

The Bespoke Products range includes precast concrete, permeable paving, chimney and roofing solutions, each of which are typically made-to-measure or customised to meet the customer's specific needs. The precast concrete flooring products are complemented by the Group's full design and nationwide installation services, while certain other bespoke products, including permeable paving and chimney flues, are complemented by the Group's bespoke specification and design service.

Costs which are incurred on behalf of both segments are held at the centre and these, together with general administrative expenses, have been allocated to the segments for reporting purposes using relative sales proportions. Management considers that this is an appropriate basis for the allocation.

The revenue recognised in the consolidated statement of total comprehensive income is all attributable to the principal activity of the manufacture and sale of bricks, both dense and lightweight blocks, precast concrete, concrete paving and other complimentary building products.

Substantially all revenue recognised in the consolidated statement of total comprehensive income arose within the United Kingdom.

Segment revenue and results:

Segment revenue and results:

3. Exceptional items

Transaction costs in both years relate to the IPO completed in April 2016 and associated non-recurring professional fees. Management incentives related to the IPO amounted to £1.1m.

Separation costs relate to the separation from HeidelbergCement AG in 2015 and Forterra Inc in 2016 and include rebranding, new office fit out costs, set up of stand-alone IT operations and staff recruitment.

A cash tax indemnity payment was received in the year from HeidelbergCement AG relating to previous tax paid. It was initially recognised as a contingent asset at zero value but later revalued to £1.6m upon confirmation of receipt.

The impairment expense in 2015 was the result of an impairment review. The charge of £2.4m fully impaired the carrying value of goodwill in Structherm Limited. In October 2016 the Group disposed of its investment in Structherm Limited and ceased to consolidate its assets, liabilities and financial results.

4. Net finance expense

Up to the date of IPO both the debt level and interest rate were significantly higher than under the Group's post IPO financing arrangements. This resulted in a higher interest charge for 2015.

5. Taxation  

The main rate of UK corporation tax for 2016 is 20%. The Finance Act (No 2) 2015 which received Royal assent on 18 November 2015 includes legislation reducing the main rate of corporation tax to 19% effective from 1 April 2017 and then 18% effective from 1 April 2020. The Finance Bill 2016 (Royal Assent received 15 September 2016) introduced legislation to further reduce the main rate of corporation tax to 17% effective from 1 April 2020.

6. Dividends

The Directors are proposing a final dividend for 2016 of 3.8p per share, making a total payment for the year of 5.8p (2015: nil).

The proposed final dividend is subject to approval by the shareholders at the AGM and has not been included as a liability in these financial statements.

7. Earnings per share

Basic earnings per share (EPS) is calculated by dividing the profit for the period attributable to shareholders of the parent entity by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share additionally allows for the effect of the conversion of the dilutive options.

As the Group did not exist in its current form for the comparative period and throughout the current period, basic and diluted EPS for 2015 have not been presented and EPS for 2016 has been calculated as if the restructuring of the Group at IPO occurred at the beginning of the period.

Pro-forma basis is presented as an additional performance measure and is stated before exceptional items and after adjustments to present finance costs and additional plc costs incurred in 2016 as comparative measures.

Operating profit for 2015 has been adjusted by deducting additional costs relating to being a stand-alone plc. Pro-forma profit before tax and exceptional items is derived by deducting 2015 and 2016 finance costs and recalculating assuming that the Company had the same financing structure as at the time of IPO. The number of shares used as the divisor is the actual number at 31 December 2016.

8. Loans and borrowings

On 26 April 2016 the Group entered into a new facilities agreement with a group of leading banks under which it has access to a £150 million term loan facility and a £30 million revolving credit facility for five years. Interest is payable on amounts drawn down under the agreement at a rate of LIBOR plus a variable margin ranging from 1.50% to 2.75%. The margin for 2016 was set at 2.25%.

The facility is subject to both financial and non-financial covenants and is secured by fixed charges over the shares of Forterra Building Products Limited and Forterra Holdings Limited.

9. Net debt

The analysis of net debt is as follows:

10. Related party transactions

Transactions with related parties:

Prior to IPO, the Group's immediate parent undertaking was LSF9 Concrete UK Ltd, a company dual-registered in Jersey, England and Wales and under the control of Lone Star Funds.

Following the IPO, LSF9 Concrete UK Ltd retained ownership of 128,666,827 ordinary shares representing 64.3% of the entire issue of share capital at the date of listing. On 26 May 2016 LSF9 Concrete UK Ltd transferred its shareholding to another company, LSF9 Concrete II Limited, also under the control of Lone Star Funds. As a result, at 31 December 2016 Lone Star Funds qualifies as a "controlling shareholder" under the Listing Rules of the Financial Conduct Authority (LR 6.1.2A).

Up to 13 March 2015, related parties were entities within the HeidelbergCement AG Group. From 13 March 2015 onwards, related parties are entities under common ownership by Lone Star Funds. All related party transactions and balances have been undertaken in the normal course of business and on an arm's length basis.

Prior to IPO, the funding structure of the Forterra Building Products Limited was such that the Group loaned money to/from affiliates Lone Star Funds. In the process of listing on the London Stock Exchange, the Group undertook a reorganisation which eliminated these balances. These listing transactions resulted in all related party receivables and payables at that time being set-off, part of the borrowings from related parties being capitalised and the remaining borrowings being settled using proceeds from new external loans and borrowings.

As at 31 December 2016, payables due to related parties relate to recharges for IT services and insurance costs. There were no other related party transactions requiring disclosure, other than compensation of key management personnel.

Transactions with key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group. The Directors of the Company and the Directors of the group's subsidiary companies fall within this category.

Information relating to Directors' emoluments, pension entitlements, share options and long-term incentive plans is included in the annual report to be published in April 2017.